Every organization, be that for-profit or not-for-profit, has an operations function, whether or not they call it ‘operations’. To achieve these results, companies have to find the necessary resources, transform them into outputs and distribute them to the market for customers to use. The term operations “embraces all the activities required to create and deliver an organization’s goods or services to its customers or clients” (Galloway, 1998, p. 53).
The duty of an operations manager of a company is to assess the operational health of that business and make the necessary changes and regulations in order to avoid future problems of correct existing ones. Operations management is “concerned with the design, management, and improvement of the systems that create the company’s goods or services” (Galloway, 1998, p. 55). The majority of most companies’ financial and human resources are invested in the activities involved in making products or delivering services.
Operations management is therefore critical to organizational success. In this report, we will discuss the situation of our company, Impressive Burgers, and the possible ways out of the present bad situation and the actions that should follow. We will try to do this by discussing some of the latest development in operations management theory. This discussion will be done in an effort to apply the tools, techniques and practical models of this science to the present situation of Impressive Burgers. After assessing the company’s background and history and the ongoing operations in the current situation, we will attempt to explain the transformation model of operational management and how it can be of use for our company.
Company background and history
The background of a company is necessary in order to properly understand the present trends which it is undergoing. Many times, the background is essential for a manager in the sense it reveals the foundations upon which the company was founded and built. Here one can find some of the major strengths or weaknesses for that company and assess what should be changed and what should not. From the point of view of an operations manager, this historical background is quite essential.
The historical way operations were conceived and conducted may be the key to the understanding of the problems that the company is facing today. Future solutions also must be based on the background. Furthermore, the most important thing is that the repeating of the operation processes year after year has formed and consolidated a certain working culture among the company’s staff.
Our company, Impressive Burgers was established 10 years ago with the goal of providing fast take away food to their customers quickly and of a higher quality to that of their rivals. In the beginning, the idea was that each restaurant should offer a simple menu structure with a choice of six set meal options. This was the industry standard but the company tried to distinguish itself from the beginning.
The size of the chips and drinks portions varied but the burger size remained the same. This mode of conducting operations made it possible that by using this format they were able to serve each customer their order within 4 minutes from ordering at the till to receive their complete order to take away. Each restaurant places their orders with the suppliers directly based on the manager’s prediction for demand based on the reports generated by the restaurant’s own till system. These orders arrive in one shipment once every other week.
Throughout the years, our company has grown into a chain of restaurant operations. In order to keep up with the expansion and the rivalry, the management introduced a number of changes to the format 12 months ago in an effort to increase each business at each restaurant. The number of set meal options available on the menu was increased and enriched to offer more options to the customer and to attract customers seeking healthier options. In addition to these set menu additions the company also offered the option of changing the chips option on the set meals for either a Side Salad or for Potato Wedges.
The restaurants themselves have not changed and the number of staff and machinery has remained at the same levels before the menu changes. That is one of the big mistakes that our company has done. In order to properly respond to this operations enlargement, the staff workload and number should also be the concern of the top management board. By failing to provide better treatment for the workforce, ultimately the company will damage itself and the ongoing of its operations (Gomez-Mejia et al, 2008). We will discuss this issue in detail later on in this paper.
Current situation and challenges
Now that we have assessed the historical background, the next step would be to make a description of the present situation of operations. As mentioned before the company decided to expand its operations at a considerable level. In fact, since these changes were implemented there has been a dramatic increase in turnover and the number of customers that are visiting each of their restaurants. This has resulted in an increase in sales and revenues, ultimately in the increase of operating profits. From a financial point of view, this seemed to be a huge success and the company should continue down this road.
However, when the balance sheets and financial statements were made it was noted that overall profit has declined dramatically over the last 12 months. What is more significant was that company predicts that if it continues the company will report its first loss in its history within the next 6 months. In order to avoid this unpleasant situation, the management board of our company is considering expanding its operations by opening a number of news outlets. Yet, to avoid falling into a major crisis situation in the future it is appropriate to identify the causes and reasons of the problems to the issues they are currently facing. That is why we have begun to investigate why the mixed fortunes have arisen and have identified a number of issues.
One of the first things that are worth pointing out is that overall serving times have increased dramatically and it now takes an average of 9 minutes for a customer to be served. Obviously, as a result, the number of customer complaints has increased. Customer satisfaction, which was one of the strongholds of our company, has begun to shake. Some of the main complaints relate directly to the contact that customers have with serving staff. These complaints include impoliteness, many times rudeness, and agitation by part of the serving staff toward the customers, especially first-time customers. Ultimately, there were complaints made and for incorrect or incomplete orders.
The immediate result for such a situation was that the total value of stock held at each restaurant has increased by an average of 20%. Also, the waste has dramatically increased. The combination of the two has brought a halt in many supply operations due to the overstock we already have. This has negatively affected our relationship with the suppliers. Having a positive relationship with your suppliers is quite essential to every company.
Without proper supply operations management, it is quite difficult for a company to succeed in the market (Hounshell, 1984). The situation we are running into may result in a decrease of willingness and desire by part of the suppliers to keep up with the quality standard we request from them. They might go as far as reconsider if they should continue working with our company. This may be an extreme thing to think of now but the first one, the decrease in quality, is certainly a threat that we are running high right now.
The second crucial aspect of this situation that is even more important is the relationship the company forms with its clients/customers. Customer satisfaction is the basis of success for a company (Thompson, 1967). In fact, it has been the basis of our success also. Company perception and image formed in the market are the foundations for customer satisfaction. If we are perceived as offering quality services and we enjoy good brand recognition then customer satisfaction will follow. The situation with the rising incorrect behavior of our servicing staff to the customers and the rising of the incorrect or late orders may bring about the rise of negative perception in the market.
This rise in negative perception will be followed by an increase in customer dissatisfaction, which will directly affect the company’s revenues and market share (Kidd, 1994). That is why the mode of running operations should be changed in order to avoid the possible negative situation described. That is why as an operations manager, along with my team, we are recommending the usage of the transformation model of operational management for the positive ongoing operations in our company.
Recommendations for the future
Transformation model of operational management
From what is written above, one can understand the importance of the role of operations in creating and delivering the goods and services produced by a business firm for its customers. In this part, we will first explain the transformation model and then try to apply it to our company. We have also constructed a graphical presentation of the model so that the management board has it easier to understand. In that figure, we represent “the three components of operations: inputs, transformation processes and outputs” (Pine and Davis, 1993, pg. 68). In the scholarly literature, “operations management involves the systematic direction and control of the processes that transform resources (inputs) into finished goods or services for customers or clients (outputs)” (Womack et al, 1990).
This basic transformation model applies equally in manufacturing and service companies and in both the private and not-for-profit sectors.
Within medium to large size companies, like ours, operations is usually a major functional area, with people specifically designated to take responsibility for managing all or part of the organization’s operations processes. In this respect, “it is an important functional area because it plays a crucial role in determining how well an organization satisfies its customers” (Galloway, 1998, p. 78). In the case of private-sector companies, the mission of the operations function is usually expressed in terms of profits, growth and competitiveness; in public and voluntary organizations, it is often expressed in terms of providing value for money (Taylor, 1998).
Turning to the graphical representation above, the three main processes our attention should be directed are inputs, outputs, intermediary processing processes (called transformation processes) and feedback (which in our case is from customers or from an internal evaluation). Inputs generally have to do with the supply chain and all the raw materials and processes needed by our company in order to develop its products and services.
The output relates to the final products and services offered to clients in our restaurants. And the intermediary, transformation processes are related to all of the internal operations of the company which is responsible for taking the raw materials from suppliers and delivering a quality product and service to the customer. The feedback relates to the reaction customers have on the outputs we produce and offer to the market.
We will discuss in detail these parts so as to better understand what should we change in them for better performance.
“Many people think of operations as being mainly about the transformation of materials or components into finished products, as when limestone and sand are transformed into a glass or an automobile is assembled from its various parts.” (Piore and Sabel, 1984, pg. 7)
But what they do not realize is that a business firm produces its goods or services by transforming the resources available. In our case, we transform unprepared food like vegetables, meat, bread, etc. into finished food products, like burgers, salads, etc. But the unprepared food does not comprise the entire inputs. We have to make a clear distinction between the various types of inputs. In fact, “part of the inputs are used up in the process of creating goods or services while others play a part in the creation process but are not used up” (Galloway, 1998, p. 79). To distinguish between these, input resources are usually classified as:
- “transformed resources – those that are transformed in some way by the operation to produce the goods or services that are its outputs;
- transforming resources – those that are used to perform the transformation process.” (Kanigel, 1999, pg. 46)
Unprepared food products are just the first part of inputs; the transformed resources. But the suppliers should also be considered as part of the inputs.
Thus one of the major problems of our company is that it has not divided its workforce into three categories. The first one would-be suppliers. It is from them that everything begins. They are the ones that provide the company with the ‘basic building blocks to develop its products. Finding the best suppliers on the market and maintaining a good and positive relationship with them, means having the best quality of raw materials possible. that would certainly traduce into a competitive advantage for our company.
“A transformation process is any activity or group of activities that takes one or more inputs, transforms and adds value to them, and provides outputs for customers or clients. Where the inputs are raw materials, it is relatively easy to identify the transformation involved, as when milk is transformed into cheese and butter. Where the inputs are information or people, the nature of the transformation may be less obvious.” (Galloway, 1998, pg. 14)
All the employees and the machinery dedicated to processing the raw materials described above are part of this process. This is the process where the product is developed prior to being served to customers. The quality of food we serve and the speed of its preparations are two of the most important criteria for customer satisfaction. Both of them relate to the above-mentioend category of employees at the input process of operations.
Carefulness and quality work should be requested from them, yet compensation should also be adequate. The workload should not go above the industry average. If we manage to keep the people in this type of operation relaxed and satisfied we have assured quality food for our clients.
The input and transformation processes result in the development of a product or a service which is then offered to the market (Galloway, 1998). It should be pointed out that part of this process is not only the food we serve. The waitress, cooks, all the workforce related to serving customers must be considered part of the process also. This process has a crucial role because it is through this process that a company faces the market. The two previous ones are ‘hidden’ ones, but this one is the one that customers evaluate. In our case, it is this one we are lacking the most quality. an increasing number of customer complaints is an argument for this and a negative sign for the future.
Many times these developed products are also associated with some ‘undesiderable outputs’, or waste. If a company gets one-fifth or more of its outputs in the form of waste that means it is going to have serious financial and operational problems for the near future (Gomez-Mejia, 2008).
This is another major problem of our company. Nevertheless, this problem is entirely dependent on the other one, customer dissatisfaction.
This is maybe the most important of them all.
“Feedback information is used to control the operations system, by adjusting the inputs and transformation processes that are used to achieve desired outputs. For example, a chef relies on a flow of information from the customer, through the waiter, about the quality of the food. Adverse feedback might lead the chef to change the inputs (for example by buying better quality potatoes) or the transformation process (for example by changing the recipe or the cooking method).” (Galloway, 1998, p. 112)
Feedback is essential for operations managers.
“Internal sources include testing, evaluation and continuously improving goods and services; external sources include those who supply products or services to end-customers as well as feedback from customers themselves.” (Galloway, 1998, p. 114)
In order to avoid waste and compromise the relationship with our suppliers, we have to get our company at the normal levels of customer satisfaction. One of the major problems is that our company has failed to make a division in categories for its workforce. The staff dedicated to each process, input – transformation – output, should be part of one category. This division of categories means that the treatment that these categories will receive will also be different.
Of course, general principles would apply for any type of operation, but, yet, each type of operation should have a different treatment. One major principle should be that the workload should be consistent with the requirements. If our company continues to ask more than what they can give, it will be impossible to avoid failure. Another important aspect is the implementation of an incentive program in order to motivate the staff for more qualitative work. This motivation factor is quite important because it will serve as a form of pressure valve.
Despite having very committed and professional members, the Board of Directors does not have the capability to adjust what is going wrong in the company. The reason is that board members do not know from within the management history of the company. They are not in touch every day with the processes the company undergoes. That is very significant. Managers are on the front line every day and their voice is not represented as it should. The structural adjustment should begin by giving more voice and decision power to the managers of the company. A sort of decentralization process would greatly benefit the company.
By giving more decision and implementation autonomy to managers, you will impact their performance. First of all, the time of reaction to a problem or a situation will shorten. Managers will not have to wait until the board decides what to do even for routine problems but will act independently. Secondly, this will increase their responsibility toward the sector they are in charge of. And thirdly, this will motivate them to improve their performance. The board will continue to play an important role. It will monitor the activities of each sector and make managers accountable for errors or lack of performance. But it will be easier for the board also since they can easily identify which sector is lacking performance (Kinicki and Kreitner, 2008).
But the main responsibility of the board of directors is to ensure proper cooperation among the different sectors of the company. Managing autonomy can tend to make managers and employees care only for their sector and their performance targets. It is the board that will have to make these pieces come together to form a puzzle. Without proper coordination, the company as a whole will still continue to suffer. This is the only thing that should be controlled in a centralized way.
The board will assign to each sector its finances and will keenly monitor its spending. It is vital that operating costs remain as low as possible for Ganong Bros. proper coordination will automatically give a hand in this process. Each department or sector will not spend unnecessary time and money for futile duties but will benefit from the work of others (Mullins et al, 2008). This way each sector will strictly specialize in its predefined duties and responsibilities. So they will increase their performance, especially for routine duties. But there exists the risk for a narrow specialization which will harm the company as a whole.
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